With a significant portion of the financial sector having already reported earnings, the landscape is clearing for potential market shifts. This reduction in company-specific risk for the Financials Select Sector SPDR Fund (XLF) could lead to diminished volatility within its components. The XLF itself has been in a consolidation phase for weeks, consolidating its sharp rebound from late March lows. Encouragingly, this digestion has remained orderly and has stayed above its 50-day moving average.
Amidst a historic rally in technology stocks, a potential short-term rotation could see investors turning to financials. This sector, having lagged the aggressive momentum seen in areas like semiconductors, presents an opportunity as many financial stocks are not as technically extended. If financials are to see renewed participation, the largest constituents of the XLF will likely lead the charge. Among these, Goldman Sachs (GS) stands out.
Long-term followers of CappThesis have seen Goldman Sachs profiled multiple times for its consistent ability to leverage bullish pattern breakouts. Similar to the broader XLF, GS has reclaimed its 50-day moving average. Notably, its current position above its 50-day moving average surpasses that of XLF, indicating improving relative strength within the sector.
The rebound from the March lows, coupled with price action dating back to February, suggests that GS is forming a potential inverse head-and-shoulders pattern. The stock has demonstrated a series of higher lows, accompanied by improving momentum. A breakout above the $950 mark would confirm this formation, projecting an upside target near $1,110 based on a measured move analysis. For risk management, a stop is placed just below the right shoulder, around $888.
Beyond its absolute chart setup, GS has also established a bullish relative pattern against the XLF, a trend that has been developing since early 2026. A breakout on both an absolute and relative basis against the second-largest sector in the S&P 500 would further support the potential for additional upside, potentially leading to new all-time highs.
A closer look at the moving averages reveals a constructive setup. The chart highlights four instances, including the current one, where the 20-day moving average crossed above the 50-day, with both trending higher and positioned above the 200-day moving average. In each prior occurrence, GS experienced subsequent upside. This pattern is particularly constructive as the 200-day moving average is also trending upward, as it is now.
Given the strengthening momentum and the potential inverse head-and-shoulders breakout, Goldman Sachs appears to be developing another constructive intermediate-term setup.
